“Everyone has a plan
’till they get punched in the mouth.”
– Mike Tyson
By David Stout, Director of Digital Marketing
At the beginning of every year, competitive marketers in every industry assess the results of the past to help build their plans to achieve current and future goals.
Multi-channel tactics, segmented content calendars and elaborate campaign mapping can look like the surefire roadmap to marketing excellence – when all the contributing factors are lining up properly and your first quarter quotas are being met. When plans don’t go exactly as expected and your metrics are down though, you may find your professional pride knocked to the ground and face pressure from a CEO or Board of Directors calling for corrective action.
So what can you do when the KPIs of good strategy are underperforming?
Start by picking yourself up and dusting yourself off because you need to bounce back in the coming rounds. You had a solid game plan but now you have to make adjustments to contend for a wide range of factors in the market or online algorithm that are out of your control but are your elements to manage.
Below are four key metrics that impact marketing ROI, some tips on how to identify situations when they’re underperforming, and how to make the necessary adjustments to lead your company towards the goals you agreed upon. Conduct a self-audit of these key ROI warning metrics:
1) Customer Acquisition Cost (CAC)
2) Marketing Percentage of Customer Acquisition Cost (M% CAC)
3) Time to Payback Customer Acquisition Cost
4) Ratio of Lifetime Value of Customer to CAC (LTV:CAC)
Review Customer Acquisition Cost (CAC)
Scenario: Revenue and cost effectiveness are primary concerns of a company executive, so while Sales may be closing deals, your PPC reports and marketing data may show that your customer acquisition costs are trending higher. It is important to have a handle on this information because high acquisition costs can also mean that it takes longer for your company to be profitable with its new customers.
Solution: There are few factors to check here. Be sure to add up the cost of all marketing, advertising and sales initiatives. If you are trying to separate your digital marketing returns you still should account for any traditional marketing that would have redirected a prospect to your website (This can sometimes correlate with direct URL traffic in your analytics reports).
It’s also critical that you’re monitoring which marketing initiatives are delivering high (and low) conversion rates so you can appropriately allocate your resources toward the high-ROI campaigns. For instance, you might notice leads that come from targeted paid campaigns and specific landing pages are cheaper to acquire, and easier to close. Naturally, this and other high performing campaign initiatives are where you should be investing more resources – so you can get more, better qualified leads and close with customers from your most cost effective sources.
Marketing Percentage of Customer Acquisition Cost (M% CAC)
Scenario: Your customer acquisition cost is performing well but, the marketing percentage of your CAC has actually risen, signaling either that you’re spending more on your marketing and lead nurturing activities, or sales costs are lower due to missed goals. Either way, this is an early warning sign that your current strategy could be losing effectiveness.
Solution: There are two portions to this solution. First, you need to look at a leaner marketing strategy. Look closely at conversion rates and traffic analytics in order to identify which campaigns and tactical elements are performing. It’s important to involve your sales managers in this evaluation, as it will help validate which initiatives are truly assisting in the sales process and reducing the sales cycle, allowing you to maximize the efficiency of your marketing activities.
You also need to make sure your sales process or people aren’t losing effectiveness, as a higher M%-CAC can also mean a lower sales cost due to underperformance. Take a look at your lead management strategy and look for ways to qualify leads more quickly and shorten the sales cycle. Make sure your CRM is up-to-date, and consider implementing custom lead scoring to ensure only the most qualified of leads make it to a phone conversation with your sales team.
Time to Payback CAC
Scenario: New business seems to be steady, but it’s taking your company too long to profit from newly onboarded customers. This is common among service industries where multi-year commitments or retainer-based models are typical. You would usually want the payback time to be less than a year or within the first half of half of a contract. If your payback period is far greater, it’s starting to affect cash flow as well as the projected growth goals of your company.
Solution: There are three areas to address here. First, your pricing model. You may need to adjust not only your overall pricing, but also the structure of how you receive payments. For instance, if possible, you may want to develop a model where you receive more payment up front to ensure you’re profitable earlier.
Also, your sales team needs to include your current contact list in the ongoing marketing communications process to maximize the value of each customer. For example, you could nurture your current customer database into other relevant revenue streams.
Lastly, in order to improve your payback time, address the problem before it even begins. Make adjustments to your marketing automation strategy in order to more effectively nurture leads through your sales funnel quicker. For instance, marketing should focus on analyzing how their personas are digesting and engaging with content, and should develop more targeted workflows that speak to their specific challenges and needs. A quicker nurturing and sales process also means a lower customer acquisition cost.
Ratio of Customer Lifetime Value to CAC (LTV:CAC)
Scenario: LTV metrics can often be misleading on the surface. What may seem like success (for example, an 8:1 LTV: CAC ratio) is actually a sign that you’re under-investing in sales and marketing and as a result, missing opportunities and leaving the door wide open for your competitors.
On the other hand, if your ratio is low (say 1:1) it’s more apparent that you’re actually losing money the more you sell. In order to increase revenue and maximize the potential for profitability, it’s essential that your LTV:CAC ratio is healthy, ensuring that the current value of a customer compared to what you spent to acquire them is around 4:1.
Solution: If after computing your LTV:CAC ratio you find it’s low, there are a few areas to assess in order to get back to optimum profitability. First, there’s a good chance your cost to acquire a customer is too high. Take a step back and review your analytics in order to identify what’s working and what isn’t. Also recognize that your pricing strategy may need to be reevaluated as well.
If your ratio is very high, this may signal that you’re under-investing in sales and marketing, and as a result, leaving a high volume of opportunities on the table for your competitors. Since this ratio is high, the margins should be available you to increase spending on marketing and advertising to leads and accelerate growth.
These metrics should serve as great starting point to turning your marketing performance around. Even after sluggish metrics have been analyzed, you will have a lot of work to do adjusting your strategy and supporting tactics. Once you’ve got your data analyzed be sure to reach out to specialists to help you implement efficiently to your adjusted budgets and strategies.
Bayshore Solutions has a 20 year track record of delivering measurable success results for our customers. Read some of our case studies of winning results. When you need expert assistance, Contact us – we’re ready, able and passionate about achieving successful ROI for our customers!